Air Canada Discount Airline: Low-Cost Carrier To Be Announced Within Weeks

CP
|
By Ross Marowits, The Canadian Press

Posted:
09/19/2012 10:15 am EDT
Updated:
11/19/2012 5:12 am EST

Air Canada says it is a couple of weeks away from announcing plans to launch a separately managed low cost carrier that will service transatlantic and leisure routes in the Caribbean and the United States. | CP

MONTREAL - Canada's two largest airlines have their sights set on new growth plans, with Air Canada set to announce details of its separate low-cost carrier and WestJet establishing its new regional service.

Air Canada chief financial officer Michael Rousseau told a CIBC investment conference Wednesday that the airline is just a couple of weeks away from announcing details of a new discount carrier that will serve transatlantic and leisure routes in the Caribbean and the United States.

It will be wholly owned by Air Canada (TSX:AC.B), but carry a different name.

"It is a very exciting initiative, not just for Air Canada, but our employees as well because it does provide growth opportunities for us," he said.

Meanwhile, WestJet plans to launch its new regional service in one half the country next summer and expand the service in other side of the country about nine months later.

However, the Calgary-based airline, which is starting the regional service with seven aircraft and ramping up to 20 by 2016, has been coy about just which half of the country it was planning to start with.

WestJet marketing vice-president Bob Cummings said the airline hosted a meeting in June of representatives from 32 communities that could be added to the regional service.

"These communities very much want WestJet to come into their community and stimulate traffic and become a part of their community," he said.

The schedule for the regional service will be announced early next year.

Meanwhile, Air Canada said about half of incremental profits from its low-cost carrier will be derived from cramming more seats into a fleet of 20 Boeing 767s and 30 Airbus A319s. The rest comes from lower employee wages and more flexible work rules.

The wide-body planes, for example, will be fitted with 20 per cent more seats, raising the number of passengers to 275 per aircraft.

The airline will serve new routes in Europe that currently aren't cost competitive for Air Canada and allow it to be more competitive on Caribbean and some U.S. destinations.

"The majority of the transatlantic routes will be, in fact, growth routes for us that we think we can make adequate, if not very strong returns," Rousseau said.

Its approach to the leisure market is more defensive, he added, with some routes switching to the low-cost carrier to improve margins.

Rousseau said Air Canada studied several different models around the world — including Qantas's Jetstar in Asia — and opted to create a wholly-owned airline with a separate management to ensure it maintains the low-cost carrier "mentality."

However, Rousseau warned the new airline, which will be launched in 2013, won't have a material impact on Air Canada's results until it ramps up to the full fleet of 50 planes.

Meanwhile, he says Air Canada is working on several other initiatives to build its profits after completing gruelling labour negotiations that lasted longer than it had anticipated.

Air Canada is also working to develop a "competitive response" to WestJet Airlines (TSX:WJA) plans to launch a regional service next year.

Bombardier Q400s planes will allow WestJet to add non-stop service to seven or eight communities and use the smaller planes on some existing routes to increase profits.

WestJet hopes the regional service will eventually add up to four million more customers to the 25.5 million who fly the mainline carrier for regular or vacation travel.

"We're not as concerned about (market) share as we are about growing profitably and successfully going forward," Cummings said.

"So we set ourselves up nicely to grow a lot of share if everything's going well or to scale back a bit and have more measured capacity growth and make sure that it is profitable."

Air Canada said it also is discussing with Ottawa about extending its moratorium on past service pension contributions for another 10 years once the current deal expires in 2013.

And Air Canada is preparing for the arrival in 2014 of its first Boeing 787 aircraft that will allow it to economically service markets such as India.

The planes, which will be purchased rather than leased, could be outfitted with three cabin classes — economy, premium economy and business.

While the International Air Transportation Association has warned about slowing premium travel, Rousseau said Air Canada hasn't experienced a softening and pricing remains strong.

On the Toronto Stock Exchange, Air Canada's shares closed up more than six per cent, gaining seven cents to $1.23 in Wednesday trading. WestJet shares lost 12 cents to $17.28.

Related on HuffPost:

Close



Air Canada's Labour Problems

of





About 3,800 customer sales and service representatives represented by the Canadian Auto Workers union held a three-day strike in June. They reached a deal with company just hours after the federal government introduced a bill seeking to legislate them back to work.
At issue was employee pensions. The airline proposed new hires would receive defined contribution pension plans instead of the defined benefit plans current employees have.
Ground workers ratified a new contract that leaves pensions alone, but negotiations continue over their future shape.
-- The Canadian Press

Air Canada's 6,800 flight attendants voted 98 per cent in favour of a strike action in September, rejecting a contract the Canadian Union of Public Employees had negotiated with the airline.
At issue, once again, was pensions -- Air Canada had proposed that new hires would receive defined contribution pensions plans instead of the defined benefits plans flight attendants currently receive.
CUPE and the airline negotiated a second deal in October, and flight attendants rejected it again -- this time by a more narrow 65 per cent.
The federal government intervened again, sending the dispute to an arbitrator, who imposed the second agreement hammered out between the union and the airline.
-- Canadian Press files

Air Canada's pilots and ground technicians were set to walk off the job just in time for March break when Air Canada threatened to do it for them and lock them out.
For the third time in less than a year, the federal government intervened, passing back-to-work legislation and sending the matter to the industrial relations board.
Prime Minister Stephen Harper defended the government's repeated use of back-to-work laws to prevent Air Canada strikes and lockouts, saying the airline is crucial to Canada's economy and cannot be allowed to stop operating, especially during a high travel season.
-- Canadian Press files

Days after a pilots' and machinists' strike was averted, Aveos, an Air Canada maintenance contractor, announced it was shutting plants in Montreal, Vancouver and Winnipeg laying off 2,400 employees. Some 200 employees in Montreal blocked access to the Air Canada building at Montreal's Pierre Elliott Trudeau building on Monday March 19, 2011.
-- Canadian Press files

Days after Labour Minister Lisa Raitt used legislation to prevent a walkoff or lockout of Air Canada pilots, the airline was hit with a flurry of delays and cancellations as an unusually high number of pilots called in sick to Montreal's Trudeau airport.
The airline clearly suspects the move may have been some kind of covert labour action, as it has filed a complaint about the incident with the labour relations board.
-- Canadian Press files

A ground crew wildcat strike disrupted Air Canada's operations at Pearson Airport on Friday, March 23, 2012, after the airline reportedly fired three workers who had followed Labour Minister Lisa Raitt through the airport, heckling her. When ground workers walked off the job in protest, the airline reportedly fired 37 of them, causing further job walkoffs. The labour relations board eventually put a stop to the protests and reinstated the 37 fired workers, but not before the strikes had spread, briefly, to airports in Montreal and Vancouver.

A month after pilots in Toronto and Montreal called in sick en masse, prompting flight cancellations, the same thing appeared to happen again, as a "sick-out" by pilots hit Toronto's Pearson Airport. At least 60 flights were cancelled the morning the apparent job action hit.
The Air Canada Pilots Association distanced itself from the action, saying it wasn't sanctioned by them. Air Canada described the sick-out as "illegal."
Photo: Chris Bouchard, whose flight to Calgary was cancelled upon his arrival, checks flight times at Toronto Pearson Airport on Friday, April 13, 2012. (THE CANADIAN PRESS/Michelle Siu)

Air Canada pilots lost their monumental labour battle with the airline when an arbitrator, appointed by the government after back-to-work legislation, sided with the airline. The decision sent Air Canada stock higher on the expectation the decision would pave the way for a discount Air Canada airline brand, but left the company's pilots angry and disillusioned.